"Fair Trade? Its Prospects as a Poverty Solution" - Book Review

Twenty-three years ago I was in my first semester of the M.B.A. economic development program at Eastern University. I took a required class that exposed us to development theories and presented case studies on development efforts from around the world. It was a semester long immersion in futility. The class had its desired effect. I’m ever haunted by how easy it is to make things worse and how hard it is to foster sound economic development.

Today, many Christians motivated by concerns for compassion and justice are looking for ways to use their economic influence to help the poor. A very popular approach is to support fair trade goods. Fair trade coffee is probably one of the most popular examples. My own denomination (Presbyterian Church, U. S. A.) is deeply involved with Equal Exchange through the Presbyterian Coffee Exchange. The aims are noble and inspiring. But having developed a skeptical eye early on, I’m always compelled to ask if a strategy like this really works.

Recently my cyber-friend and economist at Henderson State University, Victor Claar, wrote a small book Fair Trade? Its Prospects as a Poverty Solution. Claar begins the book by presenting a brief overview of the development and the dynamics of the modern coffee industry. Two economic issues that feature heavily are the inelasticity of both supply and demand, and the low barriers to entering the coffee growing business. These two combine to create a volatile industry.

Next, Claar presents a brief history of the fair trade coffee movement and how it is intended to work. That is followed by a chapter that examines whether or not fair trade coffee can work as intended. In short, based both on the way fair trade coffee works, and based on the intrinsic dynamics of a commodity industry with low barriers to entry, he concludes it cannot. In fact, paying select farmers a premium price can actually lock those farmers into production of commodities (ex., coffee) that they should be abandoning for more profitable products while simultaneously drawing other farmers into a market who would be better served by growing other crops. To understand the details of why this is so, I encourage you to read the book.

Claar concludes with a chapter on how we might respond. He offers some helpful perspective but I strongly resonated with this paragraph:

Speaking more generally, when poor countries grow rich, it rarely has anything at all to do with how many mouths they have to feed or the abundance of natural resources. Instead, across the globe, poor countries of all sizes, climates, and endowments begin to grow rich as two key factors increase. First, countries grow rich as their human capital improves. Human capital is the term economists use to describe the value that a country’s people possess through their accumulated experience and education. For example, there is little doubt that India’s recent growth explosion is due in large part to the education – including the knowledge of the English language – of its people. Second, countries grow rich as they invest in and accumulate physical capital: the machines, tools, infrastructure, and other equipment that make the product of each hour of physical labor more valuable.

That which both human capital and physical capital share is that they both transform the result of an hour of a person’s hard work into something of greater value. As the value of an hour of labor rises, employers gladly pay higher hourly rates, knowing that their bottom lines will be the better for it.

If we want to be effective agents in aiding the poor, we should focus our efforts in directions lending enhanced value of an hour of labor … (57)

Amen! Claar goes on to mention microlending efforts by organizations like Kiva as just one avenue, but there are others. I know of churches that are developing relationships with communities in emerging nations to learn from indigenous brothers and sister how best to make their resources available to them.

When I was approached by Victor to review this book and write a foreward, I was more than happy to do so. I appreciate the book’s irenic tone and the affirmation of concerned Christians trying to do the right thing with their economic decisions. But I also appreciate the concise clear analysis Claar brings to evaluating the effectiveness of fair trade. If fair trade is a topic that captures your interest, then I highly recommend that you become acquainted with this volume.

Comments

[Dennis Sanders]

Michael, thanks for sharing this. The Disciples have something like this as well, and I've long wondered if this would really lift people out of poverty. I guess my question is, why people tend to support this when we see that nations where poverty is being lessened like India or Brazil, aren't doing it by us buying fair trade coffee, but by that nation's investment in its people?

[Michael W. Kruse]

My observation is that the hierarchy in our Mainline denominations is deeply influenced by Marxian categories of thinking and economic analysis (i.e. labor theory of value, conflict between oppressor and oppressed, equal material outcomes for all) that they confuse with biblical ethics. Our Mainline denoms do invest in people in important helpful ways but when it comes to societal structural analysis they frequently opt unhelpful economic models.

[ceemac]

Michael,

What about looking earlier than Marx. While watching the John Adams miniseries on dvd a few months back, it struck me that Jefferson/Hamilton conflict is one that we still continue to navigate in this country. Not only in our churches and society but perhaps even in in each individual. Hamilton and his merchants and factories may win our minds but it is the Jeffersonian yeoman farmer that makes our heart sing.

The Fair Trade movement has a Jeffersonian appeal. Supporting a yeoman coffee farmer working his own land. Does the Hamilton role fit Claar?

By the way I have started reading Heavenly Merchandize. Only about 40 pages into it. However the puritan preachers circa 1600 make Jim Wallis look like a member of the Federalist Society or the Club for Growth.

[Michael W. Kruse]

Interesting points ceemac. Of course, Marx was not manufacturing his ideas alone. He was drawing on the religious and ethical values afloat in his day as well. Its going to have some similarities with other strains of ethical thought. Still, the Mainline world has a particular angle on things that I think borrows heavily from neo-Marxism, likely adopted from interaction with others in the academy in humanities and social sciences. This is particularly true of the liberationist camps.

I agree that the Fair Trade movement likely ties to a Jeffersonian nostalgia. I don't think I would draw strong parallels to Hamilton in Claar. Maybe if Victor sees this he can address this.

I've got Heavenly Merchanize too but I haven't started it yet. My great-grandmother Kruse's family came to Missouri from Plymouth, so I've always a had in interest in the Puritans and the Pilgrims. Plymouth started out a commune but quickly went to share ownership and private enterprise to survive. They made the same fatal flaw that some many religious communities do ... trying to apply principles of face-to-face community to the broader commercial society. I'll be curious to read how the author breaks it down.

[ZZMike]

"First, countries grow rich as their human capital improves."

And that's directly related to the form of their government and the virtue of their leaders.

Somalia is at the bottom of the heap - no government, so gang leaders become warlords. The average inhabitant (almost said "citizen") thinks that's great - crime is down (unless you count what the warlords are dong).

For the guy at the bottom, there's no way out. "Foreign aid" is pointless. It goes to the top, and at each level down, more gets siphoned off until there's little that reaches the place it's needed.

Other countries in Africa - Zimbabwe comes to mind - have governments that are corrupt or despotic or both.

Besides Kiva, there's the Grameen Foundation

[Martin Rizzi]

First, countries grow rich as their human capital improves. Human capital is the term economists use to describe the value that a country’s people possess through their accumulated experience and education. For example, there is little doubt that India’s recent growth explosion is due in large part to the education – including the knowledge of the English language – of its people. Second, countries grow rich as they invest in and accumulate physical capital: the machines, tools, infrastructure, and other equipment that make the product of each hour of physical labor more valuable.
That which both human capital and physical capital share is that they both transform the result of an hour of a person’s hard work into something of greater value. As the value of an hour of labor rises, employers gladly pay higher hourly rates, knowing that their bottom lines will be the better for it.
If we want to be effective agents in aiding the poor, we should focus our efforts in directions lending enhanced value of an hour of labor … (57)

IMO this quote well represents Hamiltonian economic thinking and particularly in its later expression in Carey's Harmony of Interest.

[Michael W. Kruse]

I guess I would need to hear more. It is not clear to me how this quote is particularly Hamiltonian.